Energy Transition Outlook 2022
Tracking Progress of Energy Transition in Indonesia:
Aiming for Net-Zero Emissions by 2050
IESR
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Indonesia Energy Transition Outlook 2022
Tracking Progress of Energy Transition in Indonesia : Aiming for Net-Zero Emissions by 2050
Authors (in alphabetical order):
Agus Praditya Tampubolon Daniel Kurniawan Deon Arinaldo Farah Vianda
Dr. Handriyanti Diah Puspitarini Icmi Safitri
Idoan Marciano Julius Christian Adiatma
Reviewers:
Deon Arinaldo Fabby Tumiwa Pamela Simamora
Publication:
December 2021
Lisa Wijayani
Dr. Marlistya Citraningrum Melina Gabriella
Pamela Simamora
Dr. Raditya Yudha Wiranegara Ronald Julion Suryadi Rizqi Mahfudz Prasetyo
Editor:
Fabby Tumiwa Pamela Simamora
Please cite this report as:
IESR (2021). Indonesia Energy Transition Outlook 2022. Tracking Progress of Energy Transition in Indonesia : Aiming for Net-Zero Emissions by 2050. Jakarta: Institute for Essential Services Reform (IESR).
Foreword
In 2021, the energy transition suddenly found its way into Indonesia’s energy policy. This energy transition was marked by a turning point in the government’s position toward coal and long-term GHG emissions. To the surprise of many, in May, Indonesia’s President ordered to stop building new coal plants, seeking to retire coal plants earlier, phase out the coal fleet gradually and accelerate renewable energy deployment and to reach NZE emission in 2060 or sooner.
Just before COP26, the government introduced carbon pricing regulation, adding the enactment of a carbon tax. In the COP26, Indonesia among others, supported Global Coal to Clean Power Transition, which seeks to end coal power plants in the 2040s, while accelerating the deployment of renewables.
Returning from COP26, the President stressed the importance to accelerate energy transition to PLN and Pertamina but also highlighted the importance of affordability of energy price.
But before reaching decarbonization by the mid of century, the current government must accelerate renewable deployment to meet the target of 23%
renewable energy mix by 2025 as stipulated in the 2014 National Energy Policy. Until today, the renewable share is only 11.2%, fall short than the target. In the last five years, renewables add 400 MW annually, only one-fifth of the capacity that has to be added annually to reach the 23% target by 2025. iven to renewable shorfall, government must undertake serious evaluation, finding and removing underlying causes of a low number of renewable energy projects investment in last six years. Meeting the renewable energy target by 2025 is a real test of the government’s credibility and indicates its capability to attain more challenging decarbonization effort by 2060 or sooner.
This report presents an in-depth and comprehensive analysis of the progress of energy transition in Indonesia by examining progress in all energy sectors and technologies deployment, as well as enabling the environment to support the energy transition in Indonesia. For the second time, we use Energy Transition Readiness Assessment to review progress in energy transition and key drivers that could advance or stall the energy transition. Compare to last year, the result this year show some progress particularly in political commitment but it has not yet translated into implementation and improvement of key energy policy documents that guide sector planning dan development.
Finally, IESR proudly presents IETO 2022. We expect this document could provide information. spark public interest in energy transition, inform policymakers on areas that need to be improved to foster energy transition, and generate public debates. Enjoy reading!
December 15th, 2021
Fabby Tumiwa Executive Director
Table of Contents
Foreword
List of Abbreviations
Executive Summary
Deep Decarbonization of Indonesia’s Energy System Current Status and Recent Development in Energy Transition
Energy Sector Overview
Energy Transition in the Fossil Energy Sector
Energy Transition in the Power Sector
Progress in Solar Power
Progress in Energy Storage
Progress in Electric Vehicle
Progress in Clean Fuels
Progress in Energy Efficiency
Energy Transitions at the Sub-National Level Financing Energy System Decarbonization Indonesia’s Energy Transition Readiness Assessment
2022 Outlook
References and Appendices
4 6 9 13 20 20 27 33 44 55 60 70 77 81 89 98 104 109
List of Abbreviations (1)
ADB : Asian Development Bank ADPM : Asosiasi Daerah Penghasil Migas
ADPMET : Asosiasi Daerah Penghasil Migas dan Energi Terbarukan AESI : Asosiasi Energi Surya Indonesia
AFOLU : Agriculture, Forestry, and Other Land Use AIIB : Asian Infrastructure Investment Bank APAMSI : Asosiasi Pabrikan Modul Surya Indonesia APBD : Anggaran Pendapatan dan Belanja Daerah APBN : Anggaran Pendapatan dan Belanja Negara APDAL : Alat Penyimpanan Daya Listrik
BAU : Business-as-usual
BBNKB : Bea Balik Nama Kendaraan Bermotor (ownership tax) BCA : Bank Central Asia
BECCS : Bioenergy with Carbon Capture and Storage BESS : Battery Energy Storage System
BEV : Battery Electric Vehicle
BKPM : Badan Koordinasi Penanaman Modal (Indonesian Investment Coordinating Board/Ministry of Investment) BMS : Battery Management System
BNI : Bank Negara Indonesia BOE : Barrel of oil equivalent BOPD : Barrels of oil per day
BPDPKS : Badan Pengelola Dana Perkebunan Kelapa Sawit (Palm Oil Fund Agency)
BPP : Biaya Pokok Produksi BRI : Bank Rakyat Indonesia C&I : Commercial and industrial CAPEX : Capital Expenditure CAT : Climate Action Tracker CCS : Carbon Capture and Storage
CCUS : Carbon Capture, Utilisation and Storage/Sequestration
CEF : Credit Enhancement Fund
CF : Capacity Factor
CFPP : Coal-Fired Power Plant
CNG : Compressed Natural Gas
CNNC : China National Nuclear Corporation
CO2 : Carbon dioxide
CO2-EOR/EGR : Carbon dioxide Enhanced Oil/Gas Recovery CO2e : Carbon dioxide Equivalent
COP : Conference of Parties
CPO : Crude Palm Oil
CSPF : Cooling Seasonal Performance Factor
DEN : Dewan Energi Nasional (National Energy Council)
DME : Dimethyl Ether
DMO : Domestic Market Obligation
DPP : Dasar Pengenaan Pajak (tax base)
DPG : Diesel Power Generator
EE : Energy Efficiency
EER : Energy Efficiency Ratio EES : Electrical Energy Storage
EJ : Exajoules
EPC : Engineering, Procurement, and Construction
eq : Equivalent
ETM : Energy Transition Mechanism
ETS : Emission Trading System
EUR : Euro
EV : Electric Vehicle
FDI : Foreign Direct Investment
FiT : Feed-in-Tariff
G7 : Group of Seven
List of Abbreviations (2)
G20 : Group of Twenty GCF : Green Climate Fund GDP : Gross Domestic Product GEF : Global Environmental Facility GHG : Greenhouse Gases
GSEN : Grand Strategi Energi Nasional Gt : Giga tonne
GW : gigawatt GWh : gigawatt-hour
HBA : Harga Batubara Acuan (Indonesian coal price reference) HEV : Hybrid Electric Vehicle
HPAL : High-Pressure Acid Leach IBC : Indonesia Battery Corporation ICE : Internal Combustion Engine IIF : Indonesia Infrastructure Finance IIGF : Indonesia Infrastructure Guarantee Fund IKBI : Indonesia sustainable finance initiative IMB : Izin Mendirikan Bangunan
IPCC : Intergovernmental Panel on Climate Change IPP : Independent Power Producer
ISPO : Indonesia Sustainable Palm Oil
IUPLTU : Izin Usaha Penyediaan Tenaga Listrik Umum JBC : Java-Bali Connection crossing
JCM : Joint Credit Mechanism JPEN : Jateng Petro Energi JV : Joint ventures KUR : Kredit Usaha Rakyat kWp : kilowatt-peak
LCCP : Low carbon scenario compatible with Paris Agreement LCEV : low carbon emission vehicle
LCOE : Levelized Cost of Electricity LCOS : Levelized Cost of Storage LCRs : Local content requirements LDV : Light Duty Vehicles Li-ion : Lithium ion LoI : letter of Intents LPG : Liquefied Petroleum Gas
LTS-LCCR : Long-Term Strategy for Low Carbon and Climate Resilience MBOPD : Thousand Barrels of Oil Per Day
MEMR : Ministry of Energy and Mineral Resources MEPS : Minimum Energy Performance Standard MHP : Mix Hydroxide Precipitate
MIGA : Multilateral Investment Guarantee Agency MMBOEPD : Million Barrels of Oil Equivalent Per Day MMBOPD : Million Barrels of Oil Per Day
MMSCFD : Million Standard Cubic Feet Per Day MoF : Ministry of Finance
MoHA : Ministry of Home Affairs MoI : Ministry of Industry MoT : Ministry of Transportation MSOE : Ministry of State-Owned Enterprises MtCO2e : Million tonnes of carbon dioxide equivalent
MW : megawatt
MWp : megawatt-peak MWh : megawatt hour
NDC : Nationally Determined Contribution
NJKB : Nilai Jual Kendaraan Bermotor (general market price) NPP : Nuclear Power Plant
OEM : Original Equipment Manufacturers OJK : Financial Services Authority
List of Abbreviations (3)
OPEX : Operational Expenditure OTR : On the road
PBB : Pajak Bumi dan Bangunan (land and building tax) PDF : Project Development Fund
PEN : Pemulihan Ekonomi Nasional Perda : Peraturan Daerah
PHES : Pumped-hydro energy storage PHEV : Plug-in hybrid electric vehicles
PKP2B : Perjanjian Karya Pengusahaan Pertambangan Batubara PLN : Perusahaan Listrik Negara
PPh : Pajak Penghasilan PPA : Power Purchase Agreement PPU : Private Power Utility PSN : Proyek Strategis Nasional PV : Photovoltaics
PPP : Public Private Partnership Q3 : Quarter 3
R&D : Research and development
RBDPO : Refined Bleached Deodorized Palm Oil RE : Renewable Energy
REDD : Reducing Emissions from Deforestation and Forest Degradation
RPJMD : Rencana Pembangunan Jangka Menengah Daerah (Regional Medium Term Development Plan) RUED : Rencana Umum Energi Daerah (Regional Energy Plan) RUEN : Rencana Umum Energi Nasional
RUPTL : Rencana Usaha Penyediaan Tenaga Listrik PT PLN (PLN’s Electricity Supply Business Plan)
SPBKLU : Stasiun Penukaran Baterai Kendaraan Listrik Umum (public battery swap station)
SPKLU : Stasiun Pengisian Kendaraan Listrik Umum (public charging station)
SKPD : Satuan Kerja Perangkat Daerah (local government work unit) SME : small-medium enterprises
SMR : Small Modular Reactor SOE : state-owned enterprise SPEL : Stasiun Pengisian Energi Listrik SRF : Solid Recovered Fuel TCO : Total Cost of Ownership
tCO2e : Tonne of Carbon dioxide Equivalent TKDN : Tingkat Komponen Dalam Negeri TOE : Tonne of Oil Equivalent TWh : terawatt hour UID : Unit Induk Distribusi USD : United States dollar
UU HPP : Undang-Undang Harmonisasi Peraturan Perpajakan VA : volt-ampere
VAT : value-added tax VGF : Viability Gap Fund VRE : Variable Renewable Energy WP&B : Work Plan & Budget yoy : year-on-year
Executive
Summary
EXECUTIVE SUMMARY
Executive Summary
•
This year marks a new milestone in our race to net-zero with the government of Indonesia announcing its commitment to reaching net-zero by 2060 and phasing-out CFPP by the 2040s (with international aid). An encouraging sign of progress is also seen in the policy and regulatory realm where key policies and regulations such as NDC, LTS-LCCR, and RUPTL 2021-2030 and regulation No. 26/2021 on rooftop solar PV were updated and improved. However, some issues linger. The LTS-LCCR’s low carbon scenario still incorporates a high share of fossil fuels plus CCUS despite estimates showing that such technological options will become more costly than the renewables plus storage option. Furthermore, while renewables capacity addition increases in the newly released RUPTL 2021-2030, the overall generation mix is still dominated by coal for the next ten years.•
The long-awaited renewable energy law, Presidential Regulation on FiT, and regulation on energy conservation suffer more delays this year and are expected to be enacted next year. The delays extend uncertainty to investors who have long been in a wait-and-see mode.•
Renewable energy development remains sluggish this year with installed capacity only increasing by 386 MW by Q3 2021, far below what is needed to achieve the 23% target. Hydropower, geothermal, bioenergy, and solar PV contributed to an increase of 291 MW, 55 MW, 19 MW, and 21 MW respectively.Rooftop solar PV hit its highest annual growth at around 17.9 MW. In contrast, CFPP saw the lowest growth for the last 5 years at around 308 MW. In terms of generation, however, coal generation still dominated the power generation by accounting for around 66% of total power generation. Meanwhile, renewables only contributed to around 13%.
•
Floating solar PV is on the rise with three new projects announced of more than 2.5 GWp: a 40 MWp floating solar PV at Nadra Krenceng reservoir and two floating solar PV projects totaling 2.5 GWp in Batam Island. The Batam project becomes a landmark for the Indonesian solar market as it becomes the first project of solar power exports from Indonesia to Singapore, opening a whole new market for renewables (solar) investors in Indonesia.•
Renewable energy continues its low investment trend by only receiving USD 1.1 billion of investment by Q3 2021, accounting for 30% of the total investment in the power sector this year. In the same period, fossil power generators received a total investment of USD 2.5 billion in the country.•
A major breakthrough came from the power sector with Indonesia joining the Philippines and Vietnam in ADB’s Energy Transition Mechanism (ETM). The ETM is set to help these three countries stop their heavy reliance on coal by early retiring CFPPs. To date, at least 9.2 GW of CFPPs have been identified for early retirement under the ETM scheme. Pilot projects at three CFPPs with a total capacity of 1.77 GW were expected to start in 2022-2023.EXECUTIVE SUMMARY
Executive Summary
•
The first phase of the Emission Trading System pilot project started this year. The pilot project received a lukewarm welcome from CFPP operators with only 32 out of 84 eligible operators participating in the pilot project. The ETS booked a total transaction of 42,455 tonnes of CO2 that was mostly traded at the lowest trading price of USD 2/tonnes CO2.•
In the transportation sector, the market penetration of electric vehicles remains low. By Q3 2021, BEV sales only reached 654 units or represented less than 1% of total car sales. If the trend continues, it would be difficult to achieve the government target of 2 million electric cars by 2030. Meanwhile, the development of public charging stations (SPKLU) and battery swap stations (SPBKLU) is also slow-moving. To date, there are only 187 SPKLU and 153 SPBKLU throughout Indonesia (mostly in Jakarta), lower than the target of 572 SPKLU and 3,000 SPBKLU.•
Biodiesel consumption reached 8.1 million kl and was expected to continue increasing to 9.2 million kl by the end of this year. Meanwhile, biodiesel exports increased from 28,000 kl in 2020 to about 100,000 kl in 2021. Pertamina successfully conducted a flight test using 2.4% bioavtur, sparking a new interest in bioavtur development in the country.•
B40 with 40% FAME will be road-tested next year, but there are still no targets for increased blending rate from the government. The B40 program faces persistent challenges for its high production costs and lack of financing sources for incentives or subsidies. To increase clean fuel penetration, the government should set up regulations on the mandatory biofuel targets, product quality standards, and incentive schemes.•
At the sub-national level, provinces such as Jakarta, Bali, Central Java, and Jambi have set up regulations and measures, such as instructions, gubernatorial or provincial regulations, and provincial budget allocations associated with climate action. One of the most popular measures adopted by the sub-national governments is the use of rooftop solar PV on public schools, youth and/or sport centers, health service buildings, and all government buildings. Given the fact that the national government has set a target to achieve net-zero by 2060, more sub-national governments should step up efforts in transitioning local economies towards low-carbon economies.•
Participation of the private sector in climate action has also emerged with around six local Indonesian companies having a net-zero target. Four out of six companies that have set such a target were fossil fuels companies with two of them being coal mining companies. Corporate responsibility in climate change mitigation was identified by all these companies as one of the main reasons for adopting such a target. This trend symbolizes a new era where fossil fuel companies start transitioning away from fossil fuels and diversifying their businesses to clean technologies.EXECUTIVE SUMMARY
Executive Summary
•
To date, there are 13 banks joining the Indonesia sustainable finance initiative (IKBI). By Q1 2021, four banks that are members of IKBI have disbursed a total of IDR 30 trillion (USD 200 million) to renewable projects. Despite the rise in renewable energy financing, local banks still disburse their credit to coal projects. Between 2018 and 2020, these four banks had disbursed a total of IDR 166 trillion (USD 8.8 billion) of loans and underwritings to coal projects.•
Overall, the readiness of the Indonesian power sector to transition away from fossil fuels and towards renewable energy gets improved this year, although some aspects still need major refinement. Aspects such as political will and investment climate of renewable energy get low ratings. This is mainly due to the less ambitious NDC and some other unsupportive regulations as well as high market entry barriers for investors interested in investing in the Indonesian renewable market. Meanwhile, techno-economic and social aspects have seen some improvements with PLN incorporating more renewables into the RUPTL 2021-2030 and energy transition getting more support from the public.•
The year 2022 promises a better prospect for the energy transition in Indonesia with the government setting up new, stronger commitments for climate action and energy transition in 2021. Major policies such as net-zero emission target, CFPP moratorium, and carbon price implementation set the positive tone for the energy transition in the years to come. In implementing the newly released RUPTL 2021, it is expected that PLN will start auctioning renewable projects next year. Apart from PLN, sub-national governments, public and private companies, as well as individuals will continue participating in the energy transition through some efforts such as setting up a net-zero target, increasing public funds for renewables, and installing rooftop solar PV on buildings.•
Rooftop solar PV is projected to reach about 500 MW next year. In addition, it is also expected that there will be energy transition projects rolled out in various locations hosting G20 meetings next year. These projects include, for example, renewable energy installations and electric vehicle deployment.•
In the transportation sector, more electric two-wheelers adoption should be expected from the ride-hailing services as they started establishing partnerships with and investing in electric two-wheelers manufacturers. From these initiatives alone, there will be at least an addition of 25 thousand electric motorcycles on the road next year.•
To make 2022 a success story, the government needs to improve the investment climate through the betterment of policy and regulatory framework.The highly anticipated regulations such as Presidential Regulation on Renewable Energy Tariffs and Renewable Energy Law expected should be issued next year along with the Presidential Regulation on CFPP retirement to send a strong signal to the market that Indonesia is fully committed to the energy transition. The implementation of carbon pricing and a pilot project of CFPP early-retirement next year will set a new critical point for Indonesia’s energy transition agenda.
DEEP DECARBONIZATION
Deep Decarbonization of Indonesia’s Energy System: A Pathway to 100%
Renewable Energy
• Deep decarbonization pathway
• Subnational government participation
• Private sector participation
Pamela Simamora
DEEP DECARBONIZATION
0 200 600 800 1,200
400 1,000 1,400 1,600 1,800
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
MtCO2e
Where we are
Where we need to be- intermediate Current
NDC
Energy sector historical emissions and emission reduction pathways in NDC
Historical Best Policy Scenario Delayed Policy Scenario Current Policy Scenario
BAU Reference
NDC CM1 (unconditional mitigation scenario) NDC CM2 (conditional mitigation scenario)
Where we need to be long-term
Source: IESR, Agora Energiewende & LUT University, 2021
Deep decarbonization of Indonesia’s energy system: Why it matters
•
Emission reduction to mitigate negative impacts of climate change has become a shared goal of the international community in recent years with more countries and businesses around the world committed to net-zero emissions, mostly by mid-century. The race to carbon or climate neutrality coincides with exacerbating extreme weather events, falling renewable energy costs, and increased awareness of climate change. To date, however, Indonesia is lagging behind other countries by only targeting 2060 to achieve net-zero emissions despite its status as an archipelago country that is vulnerable to climate change.•
Through its Nationally Determined Contribution (NDC), Indonesia aims to reduce greenhouse gases (GHG) emissions by 29% (voluntarily) or 41% (with international support) compared to the business-as-usual scenario by 2030. Current NDC, however, is far from what is needed to achieve the Paris Agreement.•
The energy sector has become the second largest emitting sector in Indonesia by contributing to 34% of total emissions in 2019 and is projected to turn into the largest emitter by 2030 if no decarbonization efforts are carried out.•
Considering the climate urgency, deep decarbonization should become one of the Indonesian government’s top priorities for the next three decades. Decarbonization should also be seen as an opportunity to modernize the overall economy, avoid costs of climate damages, improve air quality, prevent premature deaths, reduce healthcare costs, increase energy efficiency, secure water and food availability, and preserve biodiversity.DEEP DECARBONIZATION
2018 2030 2045 2050
700 600 500 400 300 200 100 0
494
562 Power
+141 -46.321 +141
-26.60 Industry
Transport
Power
-313
-113
-92 -34.60 -8.494
Industry
Industry Transport
43
Transport 0
Stage 1 Stage 2 Stage 3
Power:
• No new coal except 11 GW in the pipeline
• 100 GW of solar PV
• 2 GW of solar PV prosumers Industry:
• Biomass and electric heating
Transport:
• Increase biofuel blending
• 70-100 million new electric motor
Power:
• 100% renewables, utility-scale battery storage
• Coal retirement program
• Start installing 200 GW of electrolysers
• CO2 storage and DAC to produce synthetic fuel Industry:
• Biomass and electric heating
• Start use of synthetic fuel Transport:
• 190 million new electric motorcycles
• 50 million cars, eletcric train
Power:
• Continue 100% of renewables Industry:
• Increase use of synthetic fuel
• Heat recovery management Transport:
• Doubling electricity based methane and hydrogen production
MtCO2e
A pathway to zero emissions by 2050: What it looks like for Indonesia
Decarbonization is a long, complex process that requires proper planning. In IESR’s deep decarbonization study, the decarbonization process in the energy sector (power, transport, and industrial heat) was divided into three stages as depicted below (IESR, Agora Energiewende & LUT University, 2021).
DEEP DECARBONIZATION
Renewable capacity 160
140 120 100 80 60 40 20 0
GW
2020 2030
Solar PV Other Renewables
14x
Deep decarbonization requires dramatic changes in the energy sector within this decade
The pandemic has helped curb GHG emissions, mainly due to slowing economic activity.
However, to achieve the deep decarbonization goal, structural changes are needed. The changes, particularly, need to happen this decade to keep up with the race to zero emissions. By 2030, Indonesia needs to see:
•
Almost half of electricity is sourced from renewable energy, up from 14 percent today. Solar power contributes the largest to total power generation at around 24%.•
Renewable installed capacity increases to 140 GW, up from 10 GW today.Solar PV needs to grow by 10-11 GW per year, around a sixth of the growth come from rooftop solar PV. Power grid expands to more than 13 GW with some inter-island connections being established.
•
Coal moratorium should be imposed to peak carbon emissions by 2025.Phasing out of more than 15 year- old-coal fired power plants will be carried out from 2025 onwards.
•
Electric vehicles start to take off by accounting for 60% of market share in the motorcycle segment and 10% in the passenger car market. Electric heating is used in the industry to supply low temperature heat process with installation reaching 54 GW.DEEP DECARBONIZATION
Renewable energy mix in 2050 (RUED)
North Kalimantan
77% 71%
West Sumatra
65%
West Sulawesi
52%
Bengkulu
Multi-stakeholder participation is crucial to Indonesia’s deep
decarbonization journey: Sub-national governments need to step up
•
The complexity of deep decarbonization necessitates both state and non-state stakeholder participation as well as collaboration in the process. While the central government is key to setting up national climate target and long-term climate strategy, the success of such an ambitious goal is also dependent on local action plans. Subnational governments, for instance, should set up a more ambitious regional energy plan (RUED) that reflects the needs to decarbonize the energy system, implement green building codes, develop and integrate public transport, use public procurement to help accelerate the use of renewable energy and electric vehicles, as well as provide incentives to stimulate the shift.•
Out of 20 provinces that have already set up their RUED, only four provinces put renewable energy as their primary source of energy in 2050 by contributing more than half of energy mix in that period. The rest remains largely dependent on fossil fuels, indicating a need for updating existing RUED to better reflect the relatively new central government’s net-zero target. Furthermore, sub-national governments should put up a more ambitious regional medium term development plan (RPJMD) that highlights low carbon development goals. To date, however, only half of ten largest carbon emitting provinces in Indonesia have specific emission reduction targets in their RPJMD. With decarbonization becoming the national target, it is time for sub-national governments to step up efforts in climate action.•
To drive local energy transitions, sub-national governments may start setting up local initiatives such as 100% renewable energy islands, provinces, and cities that prove achievable when looking at similar initiatives commenced in other countries. Currently, Indonesia has had the Sumba Iconic Island initiative aimed to achieve 100% renewable energy on Sumba Island by 2025, but has no other similar initiatives despite the large renewable energy potential throughout the archipelago.DEEP DECARBONIZATION
Net-zero commitments
Main drivers of setting a net-zero target
Net-zero timeline
Ways of achieving net-zero targets
93% 82% 21% 55%
Have heard of the Paris Agreement on climate change
Recognize the need to achieve net-zero emissions in line
with the Paris Agreement
Have set a
net-zero target Are considering to set a net-zero
target
Global trend towards
net-zero commitments Potential long-term benefits of using cheaper clean technologies
Coorporate responsibility
in mitigating climate change Customer, shareholder, and public demand
Goverment regulations Financial risks of fossil energy projects
54% 50%
82% 46%
79% 29%
2060
The target year for most corporate net-zero targets100%
Carbon removal & offset solutions such as reforestation and CCUS
83%
Renewable energy (direct and indirect use)
83%
Energy efficiency
33%
Supply chain decarbonization
•
Our survey of 28 Indonesian-origin (local) companies reveals that a majority of them have heard of the Paris Agreement, indicating a high level of corporate awareness of climate change. Furthermore, more than 80% of local companies surveyed either publicly or privately acknowledge the need to achieve net-zero emissions in accordance with the Paris Agreement.•
However, our survey also indicates much work still needs to be done to bridge the gap between companies’ awareness and their climate action: in contrast to the global trend, only a fraction of local companies polled in our survey have set a net-zero target. Most are still considering to make one in the foreseeable future.•
It is important to note that ideally, net-zero targets should cover scope 1 (direct), 2 (indirect), and 3 (value chain) emissions. Out of six local companies that have committed to net-zero, only three include scope 3 emissions in their targets.Two companies only incorporate scope 1 emissions and the other one has yet to specify the scope of the target. Energy companies set a net-zero target in either 2060 or 2050, while technology companies set a more ambitious target by 2030.
•
Interestingly, “corporate responsibility in climate change mitigation” came out as the main reason why local companies (will) adopt a net-zero target. Other reasons such as government regulations and global trend in net-zero targets also influence their decision in making such a bold commitment.•
All companies that have set a net-zero target claimed to have a roadmap to achieve such a target. Carbon removal and offset became the most popular solutions for achieving company net-zero pledges, followed by renewable energy use and energy efficiency improvements.Private sector participation in
climate action is still low
DEEP DECARBONIZATION Number of companies 25 20 15 10 5 0
Recognize the need to achieve net-zero emissions
Yes No
Have set a net-zero target
Number of companies
25 20 15 10 5 0
Yes No
Consider setting a net-zero target
Number of companies
12 10 8 6 4 2
0 Yes No
Tech Comp Consumer Goods Oil and Gas
Coal Mining Coal IPP Bank
•
By category, there were six types of industries surveyed for this analysis: banking, coal IPP, coal mining, oil and gas, consumer goods, and technology companies. The selection of these industries was influenced by the fact that worldwide, companies in these sectors have become increasingly proactive in climate action. In our survey, two companies from the same corporate group that operate in a different industry were regarded as two different entities that may have a different net-zero target.•
Fossil fuel companies (oil and gas, coal mining, and coal IPP) represented around 60% of total respondents with the vast majority of the companies admitting that achieving net-zero emissions is necessary. Out of six companies that have had a net-zero commitment, four were from this category and two of them were coal mining companies. The trend may indicate that local fossil fuel companies have started to accept the fact that the era of fossil fuels will inevitably reach its end.•
Corporate responsibility in climate change mitigation was identified by all net-zero fossil fuel companies as one of the main reasons of adopting such a target. Other main drivers for net- zero in this segment included government policy, business expansion opportunities in new sectors, and financial risks associated with fossil energy projects.•
Despite government intention to phasing out coal from the electricity mix by 2040, only one out of nine coal IPP surveyed has had a net-zero target. Five coal IPP indicated their plan to set a net-zero target in the near future while the remaining were indifferent to the commitment.•
Two local banks surveyed stated they never heard of the Paris Agreement before and never had any internal discussions on the matter in their respective banks. In contrast to the global trend, none of the local banks surveyed have a net-zero target with four out of five banks surveyed having no plans to set one. The peculiar trend is also consistent with the fact that the vast majority of these banks do not see financial risks of fossil projects as one of the main drivers of committing to net-zero.Fossil fuel companies have started to see the end of fossil fuel era,
local banks lack awareness of climate change
ENERGY SECTORENERGY SECTOR
Energy sector overview
• Primary energy supply
• Major policy changes
• Investments realization in energy
Deon Arinaldo
ENERGY SECTOR
250 300 350 400 450 500
Q2 Q3 Q4
Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021
Million BOE
Primary energy supply (Q3 2021)
Primary Energy Supply
Indonesia primary energy mix (Q3 2021) 37.6%
19.7%
31.6%
11.2%
4.2%
2.0%
2.2% 2.7%
Coal Oil
Gas Renewable
Biofuel Geothermal
Hydro
Other (exclude biomass) 150
200 250 300 350
Q2 Q3 Q4
Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021
Million BOE
Final Energy Consumption
Final energy demand (Q3 2021)
Energy demand rebounds as the economy recovers
•
Primary energy supply and final energy consumption in Q3 2021 increased by 3.7% and 3.4% respectively YoY, reflecting the overall economic recovery.The supply and consumption levels, however, were still lower than the pre-pandemic levels.
•
Indonesian GDP grew by 3.24% in Q3 2021 after experiencing a decline of 2.03% in Q3 2020. However, this year’s growth was lower than both the government and ADB growth projections at 3.7-4.5% and 3.5% respectively.•
The share of renewable energy in the primary energy mix only reached 11.2%, making the 23% renewable energy target harder to achieve in four years ahead.•
The economic rebound, a sharp increase in energy demand as countries prepared for winter, and limited energy supply had caused soaring energy commodity prices in the last months of 2021. In October, all fossil fuel prices surpassed average prices in the last ten years, with coal prices hitting its all-time high (World Bank, 2021). The price spikes received mixed reactions from stakeholders considering Indonesia’s reliance on fossil fuels to produce energy and revenues.ENERGY SECTOR
Projection of electricity mix in the LCCP scenario 2,500
2,000
1,500
1,000
500
0
1,200
1,000
800
600
400
200
0
Electricity generation (TWh) Emission factor (g CO2/kWh)
2010 2020 2030 2040 2050
Coal Coal + CSS Oil Natural gas
Biomass Geothermal Other RE Grid Em. Fact Source: MoEF, 2021
BECCS Hydro Wind Solar
Distribution of energy sector mitigated emissions against BAU in 2020
34.2 12.9
8.4
5.9 2.7
New and Renewable Energy Energy Efficiency
Low Carbon Fuel CCT and Gas
Other 700
600 500 400 300 200 100 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
MtCO2e
Energy sector emissions in 2000-2020
Power Plant Coal & Fuel Processing
Industry Transportation
Commercial & Residential Non Specified
*2019 and 2020 emissions are from IESR calculation
Source: MEMR, 2021 (MtCO2e)
The power sector is key in emission reduction from the energy sector
•
It is likely that power plants become the main emitter in the energy sector in 2021 with more than 4,600 MW of new CFPP becoming online by the end of this year. These new CFPP alone will emit at least 27-32 million tonnes CO2-eq annually throughout their lifetimes.•
Our deep decarbonization study shows that emissions from the energy sector should peak by 2025 if Indonesia were to comply with the Paris Agreement.To achieve such a target, more efforts should be made to reduce emissions from power plants.
•
Programs such as co-firing or clean coal technologies will only distract the energy transition with emission reductions from such programs being hardly significant. Supercritical power plants (SC) emit around 8% fewer emissions than subcritical coal plants. While “the most efficient” advanced ultra- supercritical CFPP (AUSC) still produce much higher emissions than gas power plants, with emission reduction at around 16.5% against subcritical power plants (Tramošljika et. al, 2021). Therefore, it is more advisable to phase out CFPP that are already old and inefficient.•
Climate mitigation in the energy sector will likely depend on the success of renewable energy and energy efficiency programs in the country. The two programs contributed to around 53% and 20% of a total of 64.36 million tonnes CO2-eq mitigated emissions in 2020 respectively (MEMR, 2021).ENERGY SECTOR
The LTS-LCCR’s reliance on fossil fuels plus CCS could lead to higher energy costs
•
The Indonesian government updated its NDC in July without any increase in mitigation targets.The update only came with a new set of activities in the adaptation strategy. Apart from the NDC, the government also released the Long Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR) that sets a net-zero emissions target by 2070 before later changing it to by 2060 or sooner.
•
In the LTS-LCCR, there are some scenarios used to model net-zero emissions in all sectors.Specifically, the Low Carbon Scenario Compatible with the Paris Agreement (LCCP) is claimed to be aligned with the Paris Agreement with emissions peaking by 2030 in all sectors including the energy sector.
•
In the LTS-LCCR, fossil fuels still take up a significant share in power generation. CFPP combined with CCS/CCUS and co-firing CFPP combined with CCS (called BECCS) make up around 29% and 8% of total power generation respectively in 2060. This strategy is questionable considering that CCS prices are and will remain uncompetitive against renewable energy plus storage. If CCS is installed, the LCOE of supercritical CFPP will double from EUR 40 per MWh to EUR 80 per MWh (USD 92 per MWh) even if CO2 transport and storage costs are kept low at around EUR 10 per tonne. In this case, the cost of avoided CO2-eq is more than EUR 55 per tonne (USD 64 per tonne) (Ferrari et.al 2019).•
To make BECCS more competitive against other low carbon technologies (e.g. renewables and nuclear), high carbon prices are needed at around USD 240 per tonne CO2. The deployment of such a technology is also limited due to environmental and commodity price (e.g. food) constraints (Fajardy et.al. 2021).•
It is worth noting that the LTS-LCCR’s generation mix is different from what has been prepared by the MEMR and PLN with the latter projecting a gradual decline of coal generation due to the coal moratorium. Pivoting on fossil fuels plus CCS indeed could lead to increased energy system costs.Projection of electricity mix in the LCCP scenario 2,500
2,000
1,500
1,000
500
0
1,200
1,000
800
600
400
200
0
Electricity generation (TWh) Emission factor (g CO2/kWh)
2010 2020 2030 2040 2050
Coal Coal + CSS Oil Natural gas
Biomass Geothermal Other RE Grid Em. Fact Source: MoEF, 2021
BECCS Hydro Wind Solar
ENERGY SECTOR
0 100 200 300 400
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Renewable energy power plant Energy efficiency
Cofiring with Biomass Biofuel + green diesel
Low carbon fuel switching
CCS CCT + gas power plant
Mining site reclamation
Projected mitigated emissions in the energy sector against BAU 2021-2030
MtCO2e
Source: MEMR, 2021
Renewables and energy efficiency become the main measures to achieve the NDC target
•
Recently, the MEMR prepared a carbon emission mitigation plan in line with the NDC target for the energy sector. Under the optimistic scenario, the overall emissions from the energy sector still increase to 1,219 million tonnes CO2-eq by 2030 although the emission reduction against the BAU scenario reaches 350 million tonnes CO2-eq.•
The emission reduction is achieved through a few measures such as the use of renewables and the improvement of energy efficiency. Under the optimistic scenario, it is projected that energy efficiency and renewable energy (with 34 GW of renewables-based power plants) can reduce 113 million tonnes CO2-eq and 138 million tonnes CO2-eq respectively. About 20% of emission reduction from renewables is expected from rooftop solar PV and off-grid renewable energy projects that are not included in RUPTL.•
The biomass co-firing program that is applied to 19 GW of CFPP with a blending share of 5% needs around 9 million tonnes of feedstock annually.The emission reduction from such a program is only 5.94 million tonnes CO2-eq per year, contributing to 2% of the emission reduction target in 2030.
•
At the same time, the MEMR also anticipated annual emission reduction at around 3.9 million tonnes CO2-eq through the utilization of CCS in Gundih, Sukawati, and Tangguh oil and gas fields from 2025 onwards. OCGI study shows that Indonesia’s CO2 storage potential can reach 15.9 Gt CO2. To date, however, only 2.46 Gt CO2 has been discovered. The potential might further drop when economic viability is taken into consideration. In addition, the fact that more than 80% of the potential is located in Sumatra (OCGI, 2021) further limits its application in Indonesia since most CFPP are located in Java.ENERGY SECTOR
LCOE of CFPP plus CCS
20
15
10
5
0
cent/kWh
8.4
6.1
18.6
14.6
8.4
5.8
16.7
12.7
Subcritical Subcritical
with CCS Ultra-
supercritical Ultra- supercritical
with CCS Source: IESR analysis
CCS/CCUS might be more suitable for the industrial sector than the power sector
•
CCS/CCUS costs vary depending on the purity of CO2, storage locations and conditions as well as the distance between the source of the CO2 emissions (e.g.CFPP) and storage facility. Currently, commercial CCS projects are mainly for (blue) hydrogen production where CO2 source from gas fields and carbon storage facilities are in close proximity (McCulloch, 2021).
•
However, a recent study shows that lifecycle emissions of blue hydrogen are only 9-25% lower than grey hydrogen. This is mainly due to the fact that when producing blue hydrogen, methane fugitive emissions also increase, reducing the overall emission reduction (Howarth & Jacobson, 2021).•
Located in a gas field, the Gundih CCS pilot project is expected to have relatively low project costs. Given the close proximity of the CO2 source and existing capture facility as well as the CO2 purity, the CAPEX and 10 year-OPEX are estimated to be around USD 49 million and USD 20 million respectively. This translates into USD 24-31/tonne CO2 abatement cost.•
The use of CCS at power plants will directly compete against renewable energy plus storage. It is projected that the costs of avoided CO2 emissions of CFPP plus CCS range from USD 85-102/tonne CO2-eq in Indonesia (World Bank, 2015), doubling or even tripling the current LCOE of CFPP.•
Other than price issues, the reliability of CFPP plus CCS is also questionable. A well-known commercialized CFPP plus CCS project, the Petra Nova project, suffered frequent outages. Since its first operation in 2017, the power plant had experienced outages on 367 days before the CCS system was finally shut down in May 2020. It is reported that the outages were mainly caused by the CCS system and the dedicated natural gas power unit. Overall, the Petra Nova project failed to deliver its CO2 capture targets by only giving a net emission reduction of 70% instead of 90% as promised. The lower reduction was associated with the use of a natural gas plant to run the CCS system with the gas plant emitting 1.1 million tonnes of CO2 annually.•
Otherwise, CCS might be potentially used as a mitigation measure in cases where cheaper renewables and clean fuels are nonexistent. Harder-to-abate industries such as cement, steel, and chemical industries might also benefit from CCS, particularly when the abatement cost is still higher than USD 100/tonne CO2-eq (IEA, 2021).
ENERGY SECTOR
25 20 15 10 5 0
USD Billion
2016 2017 2018 2019
Historical Target & Realization
Deep Decarbonization
Annual Needs 2021-2030 Power Sector Energy
System 2020 2021*
1.4 1.9 2.0 1.8 2.0 2.1
11.1 19.3
Realization Target
Energy sector investment realization vs needs to achieve net zero emissions by 2050
More efforts are needed to boost investment in low carbon technologies
•
Renewables investment only reached USD 1.12 billion by Q3 2021, accounting for 55% of the government target. Meanwhile, investments in battery manufacturing plants and EV manufacturing plants were only at around USD 2.75 billion combined. Similarly, the oil and gas, coal and mineral, and power sectors only attained 54%, 63%, and 43% of government targets respectively over the same period.•
Current renewables capacity is still far from what is needed to fully decarbonize the energy system by 2050. Our study shows that for the next ten years, Indonesia would need to increase the annual investment ten times bigger than current government targets.•
The inclusion of nuclear and new energy (e.g. coal gasification) in both the energy sector strategy (GSEN) and new and renewable energy law is seen as a distraction to renewables development in Indonesia. Both technologies are deemed as “immature” technologies for the country. Moreover, concern over increased GHG emissions from coal gasification is also often mentioned by stakeholders.•
There is an urgent need to boost investments in renewable energy and other low-carbon technologies such as EVs and batteries. The government then should improve the investment climate in the country through better regulatory and policy frameworks and increased participation of all stakeholders in the energy transition.FOSSIL ENERGYFOSSIL ENERGY
Energy Transition
in the Fossil Energy Sector
• Coal sector
• Oil and Gas
• Fossil fuel companies in transition
Julius Christian Adiatma Pamela Simamora Ronald Julion Suryadi
FOSSIL ENERGY
Indonesia annual coal production 800
600
400
200
0
Milion Tonnes
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
National Annual Production Realization RENSTRA 2020-2024 Target
MEMR Annual Target RUEN 2017 Target
Source: MEMR, 2017; MEMR,2021; IESR’s calculation
*2021 production realization is projected from month trend
Global coal demand projection by IEA (2021) 200
150
100
50
0
EJ
2020 2030 2040 2050
Announced Pledge Net Zero Emission by 2050 Source: IEA, 2021.
A global trend away from coal will pose threat to the future of Indonesian coal
•
Coal remains an important commodity for Indonesia. After a slight dip in 2020, coal production rebounded, following the increasing trend in recent years, from 461 million tonnes in 2015 to more than 600 million tonnes in 2021. This production rate far exceeded the RUEN target of 400 million tonnes per year.•
On the global landscape, commitment to move away from coal hit a new milestone.During the G7 Summit, the leaders of G7 countries agreed to end new direct government support for unabated coal power projects. Later at COP 26, forty countries signed a joint declaration to transition away from unabated coal in the 2040s. As a result, around 550 GW of coal plants around the world will be phased-out and 88 GW are likely to be cancelled due to “no new coal” financing pledges.
•
The global trend of moving away from coal could threaten Indonesia’s coal future, as coal demand might start to decline. IEA (2021) predicts that global coal demand will decrease by 9% in 2030 and by 50% in 2050 from the 2020 level if all countries fully implement their announced climate pledges as of mid-2021 (prior to COP26). The IEA’s projection for net-zero emissions by 2050 displays an even more dismal outlook for coal as global demand will be halved by 2030.•
Given the global coal outlook as well as Indonesia’s commitment to phasing out coal power plants in the 2040s with international support, demand for Indonesian coal will likely start falling off before 2030.FOSSIL ENERGY
Indonesia coal reference price (HBA) 2021 250
200 150 100 50 0
USD/Tonne
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Coal price(HBA) DMO price
Annual national coal export value 25.00
20.00 15.00 10.00 5.00 0.00
USD Bilion
2016 2017 2018 2019 2020 2021
Q3 Source: MEMR, 2021.
Source: BPS, 2021.
•
Indonesia’s coal reference price (HBA) set a new record high at around USD 215/tonne in November 2021. The high prices were mainly driven by increased coal demand from China and India as the global economy started to recover and coal supply was constrained amid extreme weather events such as flooding which disrupted coal production. Coal shortages were further worsened by Chinese policy that banned coal imports from Australia.•
Indonesia increased its coal exports with the value reaching USD 17.2 billion by September 2021, a 158.4% increase YoY. By the same period, the coal industry had contributed to around 13% of Indonesia’s total export value.•
A disparity between international market prices and local prices that are capped at USD 70/tonne has made the 25% Domestic Market Obligation (DMO) hard to achieve.With price disparity, coal mining companies prefer exporting their coal to supplying the domestic market. As a result, only 46% of the 137.5 million tonnes of coal DMO quota in 2021 had been fulfilled by September 2021.
•
To address the problem, the MEMR issued two ministerial decrees that regulate export bans and fines for coal companies that fail to meet DMO and caps coal price at USD 90/tonne for cement and fertilizer industries that struggled with soaring coal prices. The price volatility has exposed businesses to the risk of shortages and price increments. It is reasonable, therefore, for the government and industries to reduce their reliance on coal by shifting to clean energy.Coal price volatility posed a risk to businesses, signaling a need to accelerate the energy transition
Indonesia annual coal production 800
600
400
200
0
Milion Tonnes
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
National Annual Production Realization RENSTRA 2020-2024 Target
MEMR Annual Target RUEN 2017 Target
Source: MEMR, 2017; MEMR,2021; IESR’s calculation
*2021 production realization is projected from month trend
Global coal demand projection by IEA (2021) 200
150
100
50
0
EJ
2020 2030 2040 2050
Announced Pledge Net Zero Emission by 2050 Source: IEA, 2021.
FOSSIL ENERGY
1000 750 500 250 0
USD/tonne LPG-eq
Cost of coal (USD/ton)
20 26.5 33 39.5 46
DME production cost w/CCS DME production cost wo/CCS LPG price (range) LPG price (average 2019)
DME production cost in different cost of coal and CCS utilization scenario
Source: MEMR, 2021
2025 2030 2035 20400
5 10 15 20
DME and LPG (million tonne LPG-eq) Methanol and gasoline (million kl gasoline-eq)
10
5
0
DME and methanol production production target vs LPG and gasoline imports
Source: MEMR, 2021
DME Methanol
LPG import (2020) Gasoline import (2020)
•
Anticipating a future decline in global coal demand, the government aims to develop the coal downstream industry to increase domestic demand while substituting imported oil products, e.g. gasoline and LPG. The updated Coal and Mineral Law in 2020 and its derivative regulations have set the legal basis for this goal with large coal producers (PKP2B) being required to develop downstream industries to get their permit extended and provided with various incentives (e.g. 0% royalty) for companies that carry out the downstream activities.•
The MEMR has set up a roadmap for producing 4.6 million tonnes of DME and 7.9 million tonnes of coal-based methanol by 2025. The number would increase to 6.1 and 14.1 million tonnes respectively by 2045, translating to about 35 million tonnes of additional domestic coal demand. DME is aimed to replace about 60% of the LPG import by 2025. Meanwhile, methanol is planned mainly for gasoline blending and feedstocks for the petrochemical and biodiesel industries.•
The coal-to-DME projects would likely be exposed to volatility risks of commodity (e.g.coal and LPG) prices. Assuming a low coal price of USD 20/tonne, the DME production would be economically feasible only when the LPG price is above USD 551/tonne, much higher than the average price of LPG prices of USD 430/tonne in 2019. Thus, such a project will unlikely be feasible without government subsidies.
•
The process of converting coal to methanol produces GHG emissions at around 3.2 kg CO2eq/kg methanol, and GHG emissions of DME production is estimated to be roughly similar (IRENA and Methanol Institute, 2021; Kajaste et al., 2018). By installing CCS technology to remove the additional CO2 emissions at the cost of USD 20/tonne CO2-eq, production costs of DME could increase by 20-25%, making it uneconomic even with low coal costs and high LPG prices.Development of coal to DME remains on the table despite
economically non-profitable
FOSSIL ENERGY
0 5 10 15 20 25
USD Billion
Indonesia oil & gas upstream investment value
Exploration Development Production Administration 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q3-
2021Outlook2021WP&B2021
WP&B: Work Plan & Budget Source: SKK Migas, 2021
0 500 1,000 1,500 2,000 2,500
MBOEPD
Indonesia oil & gas lifting realization
Oil Gas
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q3 2030
Target
Source: SKK Migas, 2020
Gas converted to BOEPD (1 MBOEPD = 5.6 MMSCFD)
